Instructor's Manual to Accompany Project Management for Engineering and Construction 2nd Edition by Oberlender

Exercise 1

During the feasibility study of a project, the initial estimated cost for design and construction is $3.7 million. It is anticipated that the cost to maintain and operate the facility after completion of construction will be $250,000 per year. Assuming the owner must obtain a return on the initial investment of 15%, what net annual income must be received to economically justify the project. Assuming no salvage value after using the facility for 12 years.